1. ECONOMIC GROWTH AND LABOUR MARKETS Jack M. Mintz C. D. Howe Institute And J. L. Rotman School of Management, University of Toronto

2. Contribution of Labour Markets to Economic Growth  Participation in work force  Employment  Aging  Matching demand and supply for skills  Immigration  Talent

3. Overall  Canada in the past decade has had a substantial increase in its labour force with high rates of female participation  Services employment has grown and dominated industry in industrialized economies  Canada’s unemployment rate has declined but remains higher the US and Australia  Much of Canada’s unemployment is temporary in nature (less than one year)

4. Labour Force 2003 CanadaUSEurope-15Australia Labour Force % Change 93-03 17.3%14.0% 6.7%16.5% Female73.0%70.4%61.7%66.9% Industry Share22.5%20.0%27.8%21.2% Unemployment Rate 7.6% 6.0% 8.0% 5.7% Long-term Unemployment share 10.1%12.4%15.3%11.6% 65 and over 12.8% 12.3% 17.0% 12.8%

5. Regulations and Labour Markets  Canada is average among OECD in terms of employment restrictions such as job security and conditions of employment and less restrictive on average in terms of industrial relations laws (collective bargaining, participation in management).  However, within North America, provincial employment laws are most restrictive for many of the provinces.

6. Employment Standards (Huberman) IndexNA Ranking in Restrictiveness Alberta51.651 BC72.4 1 Ontario65.5 3 Quebec66.4 4 Saskatchewan68.4 5 Nova Scotia52.911

7. Talent  Canada has well educated work-force.  Education testing has shown that Canada has one of the top five education system with Alberta, Quebec and British Columbia the most highly ranked.  Some soft spots – high school drop-outs, proportion of post-graduate degrees and skill-training  Government support for university education has increased since 1998 once taking into account all subsidies and tax measures.

8. Gross Rates of Return, Effective Subsidy Rates, and Effective Tax Rates for Median University Graduates, 1998 and 2003 (Collins and Davies) Gross Private Rate of Return Effective Subsidy Rate Effective Tax Rate ESR minus ETR 199812.53%19.38%13.6% 5.79% 200312.14%20.50% 9.66% 10.83%

9. Taxation and Work  Canada has relatively high marginal tax rates on work effort once including taxes and clawbacks for income-tested programs.  Rates are as high as 60% including for those with relatively modest income.  High marginal tax rates not only affect work effort but also returns to human capital, participation in work force.  Aging will result in higher taxes as governments will need to fund social services for the elderly (OECD estimates a 9.4 percentage increase in the gap between spending and taxes as a share of GDP (although this is over-estimated to some degree).

10. Taxes and Work Effort

11. Worker Productivity and Capital Investment  Capital investment has a significant impact on worker productivity.  Canada’s investment rate per worker is low by international standards (except in Alberta).  The effective tax rate on capital (corporate income and other capital-related taxes) is high in Canada relative to the rest of world.

12. Capital Per Worker 2005 Capital Per Worker ($Can, PPP) Effective Tax Rate on Capital 2005 Alberta$19,079 39.0% Ontario $7,208 43.5% Quebec $6,563 36.3% US$11,774 37.7% OECD$10,233 23.8%

13. Reform Measures  Education – skills and high-school drop-outs  Labour restrictions -- trading off protection with cost of employment  Employment insurance – experience-rating  Taxation – reducing high marginal tax rates to encourage both participation and skill-training.  Improve capital investment to create more demand for workers.